ECB to be accommodative as long as needed: Mersch

ToddBuell

DUBLIN--Monetary policy in the 18-nation euro zone will remain accommodative for as long as needed, but such policy isn't a panacea for economic problems, a European Central Bank Executive Board member said Friday.

"Monetary policy will remain accommodative for as long as necessary, but it cannot solve all problems; it merely buys time," said Yves Mersch in remarks prepared for delivery in the Irish capital.

His comments come a day after the ECB decided it would leave its interest rates unchanged, but left the door open for potential accommodative action at its meeting next month.

Mr. Mersch said that while the effectiveness of monetary policy in the euro zone had been hindered by varying financial conditions in the member countries, "we are now seeing signs that monetary policy is once more gaining traction across the euro area, in particular via the bank lending channel."

Banks' funding conditions have eased significantly since mid-2012, he said. On the lending side, he said that while the transmission of the ECB's policy to bank rates remains uneven across countries, "the dispersion has narrowed considerably."

He said the ECB's latest Bank Lending Survey showed a stabilization in lending conditions, with improvements "highly concentrated in stressed countries."

Though ECB data from the end of last year showed lending to the private sector at two-decade lows, ECB President Mario Draghi said Thursday that some reluctance by banks to lend could be explained by them wanting to shore up their balance sheets ahead of the deadline at the end of last year for the ECB's review of banks' health. He suggested that things would improve in the future.

Mr. Mersch said "we have reason to be optimistic that our accommodative monetary policy is feeding through to the real economy and, as such, can help prevent damage to potential growth caused by a prolonged period of economic weakness. "

He urged that countries continue with structural overhauls. He said that "we are facing the risk of a structural setback in growth. We can therefore no longer afford to delay, nor should we over-burden monetary policy. Structural reforms are a must."

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